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Abcs Of Fha

By KATHERINE DYKSTRA

In 1934, it was next to impossible to get a mortgage — only four in 10 households owned their residences — and the economy, to say the least, was in the toilet. This was the climate into which the Federal Housing Administration was born. Created by Congress, the FHA provided mortgage insurance to lenders, who were thus able to allow looser requirements than were available at the time.

“Most historians believe that FHA [was one thing that] helped us out of the Great Depression,” says Orest Tomaselli, COO of National Condo Advisors, which assists developers through the FHA-approval process.

Though FHA has insured more than 34 million loans since its inception, according to the US Department of Housing and Urban Development (HUD), it didn’t get a lot of attention during the recent boom. That’s mostly because there were so many easy loan opportunities.

But now that money is so difficult to come by, FHA loans might just come through for the economy again. In addition to offering down payments as low as 3.5 percent, the program allows borrowers to have credit scores as low as 620 (Fannie Mae requires scores be around 700).

“With FHA approval, buyers can close with as little as 30 percent of the units [in a development] in contract; it’s 50 percent in Fannie Mae,” says Stephen Kliegerman, executive director of Halstead Property Development Marketing.

Halstead is working on a number of FHA-approved buildings, including Toren in Downtown Brooklyn, Williamsburg’s 80 Metropolitan and 2280 Frederick Douglass Boulevard in Harlem.

The 89 units at 2280 FDB came to market 18 months ago, “just as the economy came into the dumps,” Kliegerman says. After lackluster sales, the building, priced at about $764 per square foot, applied for FHA approval.

Because FHA loans only provide financing up to $729,750, the current conforming loan limit, FHA-approved buildings have been more prevalent in the outer boroughs and in Harlem, where prices are lower. But there are exceptions.

“One of the reasons we went with FHA is 45 of the 95 units [in our building] are priced below $1 million,” says Ken Horn, president of Alchemy Properties, which is developing Griffin Court, a condo building on 53rd Street and 10th Avenue. “We realized it was a good match, as a lot of the $700,000 units and some of the $800,000 will be qualified.” (Of course, down-payment percentages will rise as apartments get more expensive.)

Tomaselli sees evidence that the number of FHA-backed buildings in Manhattan are increasing.

“South of 96th Street, we have seven or eight developments that we’ve been hired to help with FHA approval in the last 30 days,” he says.

The approval process is lengthy. It took Griffin Court three and a half months.

It can also be hard to get approved on the buyer end.

“The income check is rather stringent in that the purchaser has to have been employed for two years; no more than 33 percent of your income can go to your mortgage payment, though you get points for better credit scores,” Tomaselli says.

Another disadvantage: “A purchaser needs to get 2.25 percent up-front mortgage insurance on the loan amount,” says Tomaselli, explaining that the FHA allows you to finance that 2.25 percent, but it’s an added cost nonetheless. “When you’re purchasing a $700,000 property, you’re talking about $14,000 in added fees.”

That said, “If you have a purchaser with only 5 percent [down payment], you don’t have another option,” Tomaselli adds. “The buyer pool is filled with more people who have a 3.5 or 5 percent down payment; it’s easier to find someone with $30,000 in cash than $150,000 in cash. Frankly, I think FHA is holding up the market.”

Sweet & loan

In the market for an FHA-approved building? Here are some of the most notable.

* Midtown West

Griffin Court (636- to 666-square-foot studios for $735,000 to $790,000)